May 21, 2007

The EMI Group, the worldâ€™s third-largest record company, said today that it would recommend to shareholders that they accept a $4.7 billion buyout offer from a private equity firm, Terra Firma Capital Partners.

EMI, which releases music by the Beatles and Coldplay, has spent years in and out of merger talks with various suitors. If approved, the deal to sell to Terra Firma would remove EMI from the public markets, where its financial problems include two profit warnings this year. But Terra Firma itself could profit on the deal by subsequently selling EMI, in whole or part, to a rival, the Warner Music Group. EMI, based in London, and Warner had been in advanced merger talks last summer. They stalled after a European Union court ruling raised questions about the regulatory approval of a previous music merger between Sony and Bertelsmann.

Sources familiar with the situation had previously told Reuters that EMI had opened its books in recent weeks to Warner and three other private equity groups.

Details of Terra Firma’s strategic plans will also be a blow to Warner as it had been thought that any private equity buyer might only keep the cash-generative music publishing arm and sell the struggling recorded music division to Warner.

“It believes in the digital growth opportunity in the music market, in general, and so the expectation is that the business will be held together,” said the source.